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New AML classification for financial advisers - what changes?

Advisers have had their AML risk assessment downgraded but don’t expect that to translate into any lesser regulatory requirements.

Wednesday, July 5th 2017, 6:00AM

by Susan Edmunds

The Financial Markets Authority has released its latest AML sector risk assessment, which classifies financial advisers as “medium-low” risk, down from medium-high in the previous assessment.

The FMA said that was due to the Financial Advisers Act regime. “The information available on financial advisers has improved significantly [since the last assessment in 2011], allowing us to rate the risks for this sector.”

Managed investment scheme managers dropped similarly.

To count as a reporting entity under the AML rules, an adviser has to give advice on category one products.

FMA’s sector data showed there had been three suspicious transaction reports from financial advisers in the past year, with an average value of $324,000.

“Where adviser businesses are small we consider the lack of monetary and time resources creates ML/TF vulnerabilities. Lack of resource can lead to reduced awareness of compliance obligations, particularly around customer due diligence requirements, STR requirements and transaction monitoring.”

Eight out of 10 advisers would sign up new clients face-to-face, and the FMA said most AFAs tended to have an established customer base. But it noted that roboadvice could change that over time.

"AFAs appear to be mostly targeting high-net-worth individuals offering financial planning services aimed at establishing a long-term wealth management strategy.Whilst high-net-worth customers increase the risks of ML, the requirements for AFAs to know and analyse the needs of their customers as part of their obligations lowers the risk of ML."

Gavin Austin, of ABC Compliance, said the reclassification of advisers was appropriate.

But he said despite the lower classification, expectations on advisers were set to increase. New legislation will require them to note suspicious activity, as well as transactions.  “Some activity wouldn't fall into an STR but does fall into SAR (suspicious activity report). It might be the amount of money wouldn’t normally attract attention but then the regularity of the deposit or withdrawals without any good reason around that might.”

Some advisers still questioned why they had AML responsibilities, he said.

Barry Read, of IDS, said it was good to see it recognised that most advisers were not handling client funds. The new classification would help the FMA determine the level of scrutiny the sector would get, he said.

The FMA's report was a good chance for advisers to brush up on potential red flags, he said. "We have been saying 'don't be afraid to report if you are concerned'."

Tags: AFA AML compliance financial advisers Financial Advisers Act FMA IDS regulation roboadvice

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